Contents I INTRODUCTION 3 II MAJOR FINDINGS 4 TASK 1 4 A Division X 5 B Division Y 6 C Division Z 7 D Paradise Group Ltd 7 TASK 2 8 1 Preparing an income statement for Division X using absorption cost.
Contents I.INTRODUCTION II MAJOR FINDINGS .4 TASK A Division X B Division Y C Division Z D Paradise Group Ltd .7 TASK Preparing an income statement for Division X using absorption costing and marginal costing The quantity Division X should produce and sell to get breakeven 10 The selling price for kg of catfish fillet and profit of Division X 10 The cost of goods sold and profit of Division Z in March 2020 .11 Closing balance for inventories of Division Y on March 31, 2020 11 III CONCLUSION 14 REFERENCE LIST 15 I.INTRODUCTION In this report, an understanding of management accounting systems along with the crucial requirements will be provided by figuring out how Paradise Group Ltd applies different types of management accounting systems on three divisions are X,Y,Z to report and critically evaluating it As a result, the study will provide some recommendations for not only the case study but also the othercompanies use the same method Paradise Group Ltd is a organization with three main areas of interest, two primarily related to the business of cooking products and seafood, and only one division is entirely different, offering service-ads Division X oversees the production of catfish export fillets, Division Y is the sugar retailer, and Division Z offers promotional services to meet consumer demands These results give an initial overview of specifically defined accounting management systems in Paradise Group Ltd and specific requirements of the various types of accounting management systems Last but not least, the organization’s management accounting systems are analyzed critically Last but not least, the management accounting structures of the organization are critically examined II MAJOR FINDINGS TASK - Management accounting, which is also known as managerial accounting is a process of creating organizational objectives through the identification, evaluation, examination, interpretation and communication of knowledge to managers It focuses on all accounts planned to remember the operating company metrics to management This incorporates knowledge about the value of the goods or services purchased by the organization (What Is Management Accounting? | FreshBooks, n.d.) - The method of management includes the four basic roles of: planning, coordinating, managing, and making decisions Accounting administration plays a crucial role in executives executing these administrative roles (Sharma, n.d.) - Some kinds of management accounting systems that are normally used are: + Cost accounting system + Job costing system + Normal costing system + Inventory management system + Price optimization system + Process costing system - Following by using these MA systems ,there are also different types of MA reports that are used to collect, synthesize and calculate the information, figures, numbers from the results of Divisions such as: + Reports + Tables + Diagrams + Charts A Division X - As for Division X, process costing system is applied, each process is opened one account This is a method to aggregate direct and indirect production process costs and to average those costs over the equivalent units produced by the process Process costing system is used when a firm generates masses of the same or equivalent units of a good or service - The reason why it is used for Division X is this department includes two processes are Cutting and Packaging in order to produce catfish, which is a products that are produced and sold daily on the market of huge volumes - The benefit of this method is Divisional Manager can figure out the cost of each process in the production, therefore the correct unit cost will be calculated and then they can set the price (Bragg, 2018) Especially, process costing enables greater flexibility in manufacturing process change To specify, the X’s accountant will provide the Divisional Manager a tabular report which includes the cost and productivity of each process in the production every month - The most logical and transparent way of dealing with materials and uniformity facilities is the process costs for Division X In addition, this type of approach is reasonable because seafood (catfish) has been used on a daily basis and is not too limited in terms of the products created It can be easily seen in industries with goods manufactured in large amounts and regularly consumed, such as beef and chicken, sausage Therefor, it would seem that this system of accounting appears to influence the management of all the output costs most suitable for Division X - As I have mentioned above, the table report is useful and provides a lot of data monthly of production costs and productivity which allow the manager to control and assess the price for that product However, it can be seen that the manager still requires quality reports as it might be difficult to follow the tabular report when it can only show numbers and she wants to have reports that are more detailed To satisfy this will of the manager, it is better to mix a tabular report with charts in order to fill in the data collected by defining profitable products Moreover, X’s accountant might need to summarize the situations, challenges and trends so that the manager can take the right decisions about improvements and take the opportunity B Division Y - In the case of Division Y, inventory management system is the one that be used This system consisted of planning, coordinating and controlling activities that related to the flow of inventory into, through and from the firm Division Y's maximum and minimum reservation levels to ensure sugar is available for sale while reducing the inventory to low levels Alongside this type, FIFO is also used to valuate its inventories IMS is used to ensure goods are still available for sale and stocks in Division Y are kept at moderate prices The Inventory Management System tracks product inventory time, which is vital to Division Y because it's a food retailer Therefore, Y uses a market price as it sells sugar on the retail so that the competition is not too customer-sensitive and competes with opponents (Anthony, 2019) In addition , the risk of excess products is typically very high since sugars are a common product, so IMS is the most fitted process - IMS improves reliability, timeliness and decreases operating costs to improve the company's bottom line, increase the efficiency of inventories and enhance business streamlining Division Y's accountants produce reports once a month on the sugar sales from each store - By IMS, managers advance the inventory processes and unnecessary cost risks can be minimized or quality issues fixed This is obviously needed for a sugar retailer such as Y IMS allows the firm tracking its production, storage, packing, transport, shrinkage and quality costs; improves reliability and timeliness - Meanwhile, the Divisional Manager also looks for information of each store’s inventory balance Both cost management and revenue are needed The system and report above still have weakness when they cannot provide information on each item’s sales and income Therefore, Y’s accountant can optimize flexibly by applying the line and bar diagrams to ensure timely import decisions or adjustments in product flow, provide comparable information, evaluate fast moving parts and slow product movement that enables the organization to so The inventory balance system should automatically submit figures as comprehensive as possible to each store once a month to help affiliates still capture the flow of products C Division Z - In Division Z, the job costing and normal costing scheme are applied A job costing method involves the process of collecting information about the costs associated with a particular work in production or service This information may be required to submit the cost information under a contract to a customer where costs are reimbursed (Bragg, 2020) In fact, the job costing method can be tailored to the needs of the consumer Some consumers need only certain costs for their employment In addition , it is important to provide details to ensure the consistency of the company's calculation method that the financial crisis for fair income needs to be developed This is used when making many different goods (Nagle and Müller, 2018) A normal costing system that retraces direct costs to a cost item by using current direct cost value times real direct cost input amounts and that collects indirect costs according to the estimated indirect cost rate times the actual cost allocation base quantities - The combination of normal costs and job costs helps the accountant to analyze the real value at the end of each month In this case, Z’s accountant has chosen table charts to the annual reports since the service’s requirements need a certain number depends on the outcome The director is also concerned with customer quality, with the advertising industry's strong competition The Customer Satisfaction Index is one of the variables deciding company revenue and companies must also consider customer value, consumer satisfaction in delivering the most appropriate goods In order to plan the most suitable service strategy, Division Z should also research information on customer satisfaction by survey, fees, online quiz, etc D Paradise Group Ltd - For each Division, this company provide a summary of the income and benefit variations The changes of Divisional are reported by the diagrams and histograms with absolute and related values are ROA, ROS For that reason, GD records the relative income of the divisions and can make stronger decisions regarding the allocation of capital In addition to periodic reports, accountants from Division X, Y and Z send emails to Divisional Managers urgently notifying managers of unforeseen shifts in operating costs - However, this approach has a disadvantage that is the Divisions have not allocated the firm expenses yet The company may evenly dispense the amount of work and the mission should be distributed to dissimilar Divisions by allocation base The work level should also be suitable between the Divisions in order to keep the workforce always distributed and can operate unwrinkled without the big differences When the workloads being divided, it also boost the movement animation, improve profits and has flexible solutions if necessary By this, the firm could build up the relationships between the Divisions and employees as well as avoid unequal job conditions and complaints over wages TASK Preparing an income statement for Division X using absorption costing and marginal costing - Absorption costing: The cost per kg of catfish and Division X’s profit in March 2020 will be calculated using the absorption costing in the table below: Variable manufacturing cost Direct material cost = 1,5 Direct labor cost = Variable production cost per unit produced Total manufacturing cost = Fixed manufacturing cost = 0,5 Total inventoriable cost 1,5 -1 = 0,5 + 0,5 = 3,5 According to Horngren, absorption costing is an inventory cost approach that covers inventory costs of both variable cost of production, and fixed cost of production Or put it another way, inventory "absorbs" all costs of production From a given data, we can calculate the total variable production cost per kg of catfish fillet, which is $3 - Income statement: Income statement is one of a company's key financial statements that shows its income and loss over a period of time The income or loss is determined by taking all revenues from operating and non-operating operations as well as by deducting all expenses Revenue Beginning inventory Variable manufacturing = 40,000 * = 120,000 32,000 * = 160,000 40,000 120,000 + 20,000 Fixed manufacturing cost = 40,000 * 0,5 = 20,000 Cost of good available for sale = 140,000 140,000 – 28,000 Deduct ending inventory = 8000 * 3,5 = 28,000 Cost of good sold Gross margin = Revenue – Cost of good sold = 160,000 – 112,000 112,000 48,000 – 10,000 Fixed selling = 10,000 Operating income 38,000 Profits = Revenue – Cost of good sold – Fixed selling = 160,000 - 112,000 – 10,000 = 38,000 - Marginal costing: In other ways, marginal costing is an alternative costing approach to loss absorption The marginal cost is the expense of a product or service unit that would be reduced if this unit were not manufactured In marginal costing, only VC is charged as a cost of sale which stands for variable cost The fixed cost is viewed as a expense of the time Variable manufacturing cost Direct material cost Direct labor cost Variable production cost per unit produced Total manufacturing cost Total inventoriable cost 1,5 0,5 3 - Income statement: By using the marginal costing, the table below will show the Income Statement for Division X: Revenue Beginning inventory 32,000 * = 160,000 40,000 Variable manufacturing 40,000 * = 120,000 Cost of good available for sale = 120,000 120,000 – 24,000 Deduct ending inventory = 8000 * = 24,000 Cost of good sold Contribution margin = Revenue – Cost of good sold 96,000 (160,000 – 96,000) – 30,000 Fixed selling + Fixed manufacturing cost = 10,000 + 20,000 Operating income 34,000 Profits = Revenue – Cost of good sold – Fixed selling = 160,000 - 96,000 – 30,000 = 34,000 The quantity Division X should produce and sell to get breakeven Breakeven quantity is the production point at which profits are only adequate to cover all expenses including fixed costs and variable costs Which means the producer does not make a profit at the breakeven quantity but he also does not lose In other words, this is the production level situated at the company's breakeven point Breakeven Q = = = 15,000 kg Inventory = 8,000 kg Division X should produce 15,000 – 8,000 = 7,000 kg The selling price for kg of catfish fillet and profit of Division X - In this case, we assume that Division X will use absorption costing and set the selling price for one kg of catfish fillet Division X’s profit is also measured and then an financial statement is prepared as well The selling price for one kg of catfish fillet = Total inventoriable cost + 35% mark up = 3,5 + 35% * 3,5 = $4,725 - Income statement: Revenue = 32,000 * 4,725 = 151,000 151,200 – 112,000 Cost of good sold Gross margin = 39,200 39,200 – 10,000 Fixed selling = 10,000 Operating income 29,200 The cost of goods sold and profit of Division Z in March 2020 Since the over allocated/under allocated overhead is counted in the cost of sale (of Job 201), this report will calculate the figures based on Job 201 Production cost for Job 201 Direct materials = $10,000 Direct labor = $8,000 Applied overhead = 8,000 * 150% = 12,000 $ = Budgeted overhead Total production cost for Job 201 = 21,000 Applied overheads = (6,000 + 4,000 + 8,000) * 150% = 27,000 The overall located overhead is counted in the cost of good sold = 28,000 – 27,000 = 1,000 Total cost of good sold = 21,000 + 1,000 = 22,000 Closing balance for inventories of Division Y on March 31, 2020 Date Opening inventory Purchase Unit Per Unit Per Amount unit 1/3/2020 3/3/2020 13/2/2020 20/3/2020 26/3/2020 Amount Ending inventory Unit Per unit Amount 50,000 0 0 0 100 500 50,000 400 505 202,000 0 100 500 0 100 500 50,000 50,000 Amount unit 500 202,000 Unit Per unit 100 505 18/3/2020 Sell 100 500 50,000 500 500 505 252,000 200 505 101,000 252,000 200 505 101,000 0 200 505 101,000 0 0 0 300 510 153,000 0 300 510 153,000 300 510 153,000 0 280 510 142,000 20 510 10,200 It is obviously that at the beginning, the minimum reservation is 100 tons but the real ending inventory is 20 tons Accordingly, this leads to the stock out issue in Division Y as 10 the ending inventory’s units number in under the same figure that has been predicted in the beginning There is a decline in inventory under stocking The lead time factor is very critical in terms of buying and providing In most situations, early demand is encouraged by the buying division because the delivery is an unpredictable buffer and the lead time delays The potential loss of stock is affected by differences in the time of use and by the late payment of the purchase order from the customer department while time is the standard in delivery When any supply arrives too late, the departments' work at institutes will be slowed down, and the research will not continue smoothly Stocking out creates a lack of credibility due to the failure to produce or late deliveries, which also obscures overhead retail costs Expenditure would result in high costs due, for example, to delays in construction at the Kenyan forest research institution This will be represented in monthly figures when the stock costs are calculated, in order to be consistent with purchase and maintenance costs Production costs in product models are difficult to calculate or to use Subsequently, stocks in the manufacturing and user departments could lead to work stoppage and production slowing down The source of the products sold is not gone, management needs to clear the data and the surplus amounts, invest in the growth of risk management teams and avoid situations where the qualified departments can not manage them Specific details reports for each division 's goods, estimates, and inventories strictly eliminate errors and always deliver a report in good time To replace it quickly, establish emergency managers for out-of-sale information Furthermore, establishing sustainable ties with multiple suppliers of goods would ensure versatility and abundance of supplies, can be easily modified as needed, and will avoid dependence on one supplier 11 III CONCLUSION Finally, to summarize this research, I have mentioned management accounting and the necessary requirements in order to apply various kinds of management accounting systems Different ways to the management accounting reports were also figured out All of this was specifically analyzed and explained in the case of the Paradise Group Ltd in each Division as well as by the firm Moreover, suitable techniques of cost analysis were also used to calculate and prepare the income statement for each Division in different situations by using marginal and absorption costs 12 REFERENCE LIST Anthony, L 2019, ‘What is market-based pricing strategy?’ Small Business - Chron.com Available at [Accessed May 2020] Bragg, S 2018, ‘Process costing system’, Accounting Tools 09 February Available at: [Accessed May 2020] Bragg, S., 2020 The Job Costing System — Accountingtools [online] AccountingTools Available at: [Accessed May 2020] 13 FreshBooks n.d What Is Management Accounting? | Freshbooks [online] Available at: [Accessed May 2020] Horngrn, C T., Datar, S M & Rajan, M V., 2015 Cost Accounting 15th ed s.l.:s.n Nagle, T and Müller, G., 2018 The Strategy And Tactics Of Pricing New York: Routledge Pontius, N., 2020 What Is An Inventory Management System? – Camcode [online] Camcode Available at: [Accessed May 2020] Sharma, V., n.d Functions Of Management Accounting (4 Functions ) [online] Your Article Library Available at: [Accessed May 2020] 14 ... defined accounting management systems in Paradise Group Ltd and specific requirements of the various types of accounting management systems Last but not least, the organization’s management accounting. .. understanding of management accounting systems along with the crucial requirements will be provided by figuring out how Paradise Group Ltd applies different types of management accounting systems on... research, I have mentioned management accounting and the necessary requirements in order to apply various kinds of management accounting systems Different ways to the management accounting reports were